LexCase’s Diane Bandon-Tourret and Esther Vogel on the newly restructured early access mechanism for medicine products in France
The French Social Security Financing Law (LFSS) for 2021 restructured the entire early access mechanism for medicine products. Continue reading “Sponsored briefing: Life sciences market in France: Early access of medicines reform for 2021”
Since 1 January 2021 three significant changes have been in effect in relation to the practice regarding the Swiss tax treatment of employee benefit plans. The Swiss Federal Tax Administration stipulated this practice update in its circular letter No. 37 on employee benefit plans.
As from 1 January 2021, non-listed companies implementing an employee benefit plan will be valued based on the so-called practitioner method ((2x earnings value + 1x net asset value) divided by 3). Depending on the canton, other assessment approaches may also be applicable for companies that meet the qualifications of start-ups. Irrespective of this change in practice, companies can still apply a valuation using their own methodology (eg an EBITDA multiple), provided that (i) the formula plausibly reflects the business model, (ii) it is comprehensible and (iii) it is accepted in advance by the relevant cantonal tax authorities as ‘suitable and approved’. It is advisable to ensure the acceptance of a separate valuation formula by means of an advance tax ruling.
As a general rule, both the purchase of employee participations may be subject to Swiss individual income tax. That is, the difference between both the purchase price paid by the employee (if any) and the fair market value constitutes an employee-related benefit and is subject to tax. The same applies, if there is a surplus profit in the event of a sale; ie if the sale price exceeds the value of the employee participation based on the same formula as at the time of allocation and the sales price. The surplus benefit is generally treated as taxable employment related benefit. However, as of 1 January 2021, a holding period applies to the taxation of this surplus benefit:
What previously applied only in the Canton of Zurich now (since 1 January 2021) applies throughout Switzerland. After a five-year holding period, any surplus profit will no longer be subject to Swiss individual income tax. Thus, the entire difference between the value at the time of granting the shares and the latter sales price qualifies as a tax-free capital gain, save for income taxation of violations of an eventual blocking-period in years n6-n10.
This tax exemption for capital gains in principle only applies for sales to third parties. The five-year holding period remains irrelevant for re-sales to the company or its shareholders, and any surplus profit is subject to income tax and social security contributions in the cantons in question.
The change of practice will undoubtedly apply to new employee benefit plans throughout Switzerland. In a perfect world, the same rules should also be applicable to existing employee benefit plans, where employee participations were allocated before 2021. Unfortunately – as a result of the Swiss federal system – this is not (yet) the case. Depending on the canton, there are currently different opinions as to how the new nationally applicable five-year holding period shall apply to existing employee benefit plans. Companies affected will most likely not be able to avoid getting in touch with the relevant cantonal tax authorities to resolve this ambiguity and to be on the safe side.
If employees acquire shares of the company at the same terms and conditions as those applicable to third-party investors, their shares do not qualify as employee shares. The same applies to shares acquired by shareholders (so-called ‘founding shareholders’) in the course of the incorporation of the company. Future capital gains realised on such sales are therefore entirely tax-free, irrespective of whether the sale is made to third parties, to the company or to shareholders. However, this requires that no discount due to the blocking period is granted when allocating the shares.
However, other aspects of the tax authorities’ intervention against the tax-free capital gain, such as the qualification of the shares as business assets or the qualification of the employee or founding shareholder as a professional securities dealer, must be considered.
The changes of the practice are highly welcomed. Nevertheless, the effects on existing employee share plans are ambiguous owing to the lack of clear transitional provisions. It is therefore worthwhile for affected employees and employers to consult their tax adviser as early as possible.
To find out more about Prager Dreifuss’ tax team, contact Lukas Scherer, tax counsel
T: +41 44 254 55 55
EBN & Co’s Viva Gayer and Jonathan Achiron on the impact coronavirus has had on the M&A sector and what the future may hold for such transactions
The Covid-19 pandemic will continue to affect the world economy. Covid-19 has put nearly every aspect of business operation to a test. We have seen a slow-down in the number and scope of M&A transactions in the first and second quarters of 2020. Whereas 2019 was phenomenal for the Israeli M&A market, it is clear that 2020 and even 2021 will be challenging. The M&A market will need to re-invent itself. Continue reading “Sponsored briefing: The Impact of Covid-19”
Ruth Loven, partner in the litigation practice at Yigal Arnon & Co, on what companies wanting to do business in Israel need to be aware of
The Israeli legal and economic market has undergone a robust expansion during the last decades. One contributing factor to this process is undoubtedly the rise of the Israeli ‘Start-up Nation’. This focus on technology and research and development has resulted in the need for large Israeli law firms with global connections to provide full-service shops with expertise in a multitude of disciplines and jurisdictions. The Israeli legal market is sophisticated today and is servicing cross-border transactions on a daily basis. At least in the high-tech industry, ‘Silicon Valley’ practices have been adapted to the Israeli legal and business environment.
With numerous companies valued at billions already traded on Nasdaq, Israel is second only to China in the amount of foreign firms it has listed. This is clearly a testament not only to the confidence that foreign investors have in the Israeli marketplace, but also to the much improved corporate and tax law regimes.
Litigation is no exception to the robust expansion of the Israeli market in the last decades. As an increasing number of multinational conglomerates have entered the Israeli market and established a business presence, and while Israeli society and the economy have further matured, the practice of litigation in Israel has had to adapt in order to meet international standards as well as to service local demand and expectations. This change is particularly evident in terms of Israel’s modern and sophisticated procedures as well as with respect to causes of action, international litigation and consumer rights.
Despite its relatively small market size, Israel is one of the very few jurisdictions in EMEA which offers a modern US-style class action. The Class Actions Law 2006 allows for the filing of class actions under various circumstances, using an ‘opt-out’ mechanism, namely, any person or entity that falls under that definition becomes a member of the class, unless they provide a withdrawal notice (while the court is allowed, under special circumstances, to apply an ‘opt-in’ mechanism). The filing of a class action is subject to the court’s approval and discretion, and is subject to meeting several conditions: (1) the action must raise material questions of fact or law that are shared by all members of the class; (2) there must be a reasonable possibility that the legal or factual questions will be decided in favour of the class; (3) a class action must be the efficient and fair way of resolving the dispute under the circumstances of the case; and (4) there must be a reasonable basis to assume that the interest of all members of the class will be represented and managed properly and in good faith.
Israeli law further offers modernised consumer rights regulation. The Consumer Protection Law 1981 imposes various obligations towards consumers who purchase products or services for personal, family or domestic use. This raft of obligations include a prohibition on misrepresentation, duties of disclosure, duties concerning product labelling, special regulation on autorenewals, cancellations and refunds, and other types of duties and prohibitions. It contains various post-sale duties, mainly with respect to warranty periods and terms; repair of defects; technical service and more.
The combination of sophisticated consumer rights regime and the availability of class actions has led to a substantial increase in the number of consumer rights and product liability cases as well as to the significant development of case law on consumer rights, duties of disclosure, duty to warn, product labelling, competition issues, data protection and other matters.
The Israeli Supreme Court ruled in 2018 in Re Facebook that a jurisdictional provision in a uniform contract with Israeli consumers referring to a foreign jurisdiction (in the foregoing case – US and particularly to California) is an unconscionable provision and hence unenforceable, while a provision which applies foreign law is not necessarily such. Foreign companies providing products or services to Israeli consumers should therefore assume that a class action may be filed against them by a class of Israeli consumers and would be adjudicated in this jurisdiction (either pursuant to foreign law or otherwise).
Against the foregoing background, foreign companies providing products or services to Israeli consumers or having business dealings with Israeli entities should be aware of certain legal risks associated with this jurisdiction, inter alia:
In cases where a multinational conglomerate is litigating in Israel, there is a level of expectation to receive the highest quality of legal service and attorney attention that matches other jurisdictions, particularly the US or EU. Both the Israeli legal market in general, and our firm in particular, has adapted to this high standard.
Ruth Loven, partner, litigation practice
Yigal Arnon & Co
1 Azrieli Center
Tel Aviv 6702101
Israel
T: +972 3 608 7901
E: ruthl@arnon.co.il
www.arnon.co.il
Tadmor Levy & Co’s Yechiel Kasher and Sivan Wulkan-Avisar answer questions on how the litigation and disputes market functions in Israel
Israel has an independent, adversarial legal system, modelled on the Common Law tradition.
Israel’s court system is divided into three tiers: Magistrates’ Courts, District Courts and the Supreme Court. The former are trial courts and appeals over Magistrate Court decisions are submitted to District Courts. The Supreme Court is an appellate court (also functioning as the High Court of Justice). There are no juries in Israel. Israel also has unique tribunals established by law, inter alia, the Antitrust Tribunal, military tribunals, religious courts, family courts, labour courts and administrative courts.
A civil proceeding is initiated by the filing of a statement of claim, following which the defendant has the right to file a statement of defense within 60 days, and to which the plaintiff has the right to file a rejoinder within 30 days.
According to the Bar Association Rules (Professional Ethics), 5746-1986, lawyers are forbidden from providing loans or other benefits to their clients (ie, to fund the litigation). Contingency fees are allowed under said rules.
Per the Tort Ordinance: assigning a claim is forbidden unless it has been explicitly allowed (said rule refers only to tort claims). The Supreme Court has established various exceptions to this rule, the most significant being assigning a tort claim on the grounds of contractual context. There is no legal limitation over a non-lawyer litigation funding, although this practice is uncommon.
Generally, there is no formality with which parties must comply prior to initiating proceedings. However, there are exceptional procedures with unique requirements, such as remedies exhaustion when required or a warning letter prior to the submission of a class action.
Proceedings begin with the serving of the statement of claim and a summons to the defendant. Regulation 162 states that the first pleading can be served either by post or in person. Service outside jurisdiction requires the plaintiff to apply to the Court to obtain a permit for service of process outside the jurisdiction. Regulation 166 elaborates on the circumstances under which this type of permit is granted.
There are two types of Court jurisdiction: material and local. Both bind the litigants. There are six judicial regions, each with a single District Court and several Magistrate Courts. Magistrate Courts within each District have parallel authority. If no District has jurisdiction, the case would be allocated to the Jerusalem District Courts. The geographical factor (eg, a land-dispute involving a real-state in Tel Aviv would be brought to the Tel Aviv Court) would play a role when allocating the case between districts, based on specific rules. Materially, claims exceeding ILS 2.5m are brought directly to a District Court, while claims below ILS 2.5m are brought to the first tier, Magistrate Courts). For other matters, cases are heard in accordance with the matter in question, (eg family matters are brought to family court, an antitrust issue with the Antitrust Tribunal and so on.
Courts have broad discretion regarding how proceedings will be managed. The president of each Court appoints the presiding judge who will hear the case. In cases where requests have been discussed as part of the main proceeding, the Court would impose costs regarding these requests at the final verdict.
Courts have the power to strike out a statement of claim (either with or without res judicata) or part of it, at any stage of the proceeding due to lack of cause of action, inaction, vexatious statement of claim, consistent incompliance with the Regulations or court order, res judicata, limitation or for any other reason at the court’s discretion. The Court also has general discretion to strike out pleadings, either as a whole or specific parts, due to abuse of process.
Civil proceedings’ disclosure consists of document discovery and production (with their production) and questionnaire. Following the filing of the final pleading, the litigants are required to replace affidavits regarding the list of documents relating to the disputed matters, which are or were in the possession or control of the litigant and which the litigant located after inquiry and demand. If the document is no longer in the litigant’s possession or control, it should also specifically detail the circumstances. The document review procedures will be completed no later than 30 days before the first preliminary hearing. There are no special rules regarding disclosure of electronic documents.
Absolute privilege: concerns situations in which the Court has no discretion as to whether to maintain privilege and refers mainly to two situations: client-attorney and clergy–penitent privileges. Partial privilege: concerns situations in which the Court was granted the discretion to remove the privilege (eg, physician–patient privilege, journalists). The removal of privilege will be done while balancing the interests at stake – exposing the truth and the reasons that justified privilege in the first place.
By default, the parties exchange documents without the Court’s intervention. However, a party that seeks the disclosure of a specific document should submit an adequate request to the Court. The legislature specifically recognises the importance of adequate disclosure and review procedures, and that it constitutes a basic condition for an adequate and fair judicial procedure. If the court determines that a party has not properly fulfilled its obligation under the New Regulations, the Court can issue orders requiring disclosure or response to questionnaires, as well as impose expenses and in special cases, even have the pleading dismissed.
As Israel has an adversarial legal system, main testimonies are heard verbally or by an Affidavit of evidence in chief, and the opposing party has the right to cross-examination.
As a rule, any relevant evidence is admissible. Nevertheless, there are several exceptions to this rule, such as hearsay evidence and privileged documents. Expert medical opinions shall be annexed to the statement of claims. A non-medical expert opinion shall be submitted to the Court no later than 90 days prior to the date of the evidential hearing (or at a date determined by the Court).
Expert opinions may only be submitted in writing. Each party is entitled to submit an expert opinion on his behalf. There is no limitation to the overall involvement of the commissioning lawyer in the preparation of the opinion. Still, the absence of such a prohibition does not allow the submission of an opinion that is, in fact, of the commissioning attorney who commissioned the lawyer – and the underlying issue of the expertise which is the subject of the opinion remains with the expert. The court has the authority to appoint an expert on its behalf to assist in questions of expertise. It seems likely that this practice will become more commonplace under the New Regulations. There are some legal fields in which appointing an expert on behalf of the Court is a somewhat perfunctory step with substantial influence on the proceeding. Expert witnesses are warned of the legal implications of misleading the Court, it can reasonably be assumed that they owe their duties to the Court itself, rather than the summoning party.
The default is to impose costs on the winning party. In practice, costs are estimated by the Court and the sum ruled is generally less than the real actual expenses. The Court has the authority to add a monetary interest with linkage differences to the judgment. Non-adjudication of interest and linkage differences is an exception. Generally, it is impossible to claim damages for the mere filing of a claim or the conduct of a defence (except for damage caused by a temporary interim order, if the claim was eventually rejected).
A foreign, civil, and operative judgment can be enforced in Israel. The enforcement is via the legal procedure, and the conditions set in the Enforcement Law. Recognition of foreign judgments – ie, the adoption of a legal determination not by way of enforcement (for instance for the purposes of estoppel by record). It is secondary to the other proceedings and subject to certain conditions.
Yechiel Kasher
yechiel@tadmor-levy.com
Sivan Wulkan-Avisar
sivan@tadmor-levy.com
Tadmor Levy & Co.
Azrieli Center, The Square Tower, 132 Begin Rd., Tel Aviv, 6701101, Israel
Tel: +972-3-684-6000
Fax: +972-3-684-6001
Lee Saunders, editor at Nishlis Legal Marketing, takes a closer look at Israel’s dynamic and robust legal market
With more lawyers per capita than any other country and with over 110 international law firms with an Israel Desk, Israel is home to one of the most dynamic and robust legal markets. The two largest law firms have a little over 400 lawyers, the eight largest law firms have more than 200 lawyers and the top 20 law firms have over 80 lawyers, all in all, Israel’s top-20 law firms contain 5% of all the lawyers in Israel.
With respect to gender equality, Israel’s 70,000 lawyers are split almost equally between male and female. In fact, Israel has four female Supreme Court judges – surpassing the number in the UK, whose own first female president, Baroness Brenda Hale, was appointed only in 2017. By then, Israel was about to start on its third female president, with its first, Dorit Beinisch appointed in 2006. Furthermore, by this point, Israel had already appointed two female Ministers of Justice: Tzipi Livni – serving three times – and more recently, Ayelet Shaked in 2015.
The country is an attractive destination, mostly due its principal export: the innovation of its hi-tech sector. Israeli start-ups raised a record monthly figure of over US$1.2bn in January 2021, according to press releases from the companies and their investors. Israeli tech companies raised a record US$10bn+ in 2020, according to IVC-ZAG, up from US$8.3bn raised in 2019, and US$6.4bn in 2018.
In many instances, financing rounds by tech companies that facilitate remote working and healthcare and cyber security, have been boosted rather than hampered by the Covid-19 pandemic. For example, in response to the Covid-19 pandemic, organisations around the world had to quickly mobilise and move to remote work platforms. Israel is at the forefront, with respect to the cyber industry.
It is technology that has been at the forefront of recent exciting developments with the United Arab Emirates (UAE) and Morocco. Last year’s landmark agreement formalising ties between Israel and the UAE has investors and entrepreneurs flush with genuine excitement and in October, Israel and the UAE announced the creation of a new trilateral fund – the Abraham Fund – with the US, potentially worth more than US$3bn. In addition to cyber, defense, healthcare, AI, while in the field of smart transportation, Israel’s Mobileye announced a strategic partnership with the UAE’s Al Habtoor Group (AHG) to begin setting up the infrastructure to test autonomous vehicles in Dubai. After the UAE, Morocco became the fourth country in recent months to normalise relations, opening up opportunities in food, agri-tech and desert agriculture, as well as solar and wind energy.
* Disclaimer – the table was derived from size, quality of work (according to The Legal 500 rankings) and cross-border capabilities.
Renewable has been the star sector in the Spanish energy market during the last years. The country weather conditions, the existence of a relevant experienced industry, the availability of financing, the support of the public administration and the recent policies have resulted in a very successful cocktail, permitting a significant development of renewable technologies making Spain a global leader in this field.
Specifically, early this year, the Government announced a new set of legislation to promote and update the Spanish renewable legal framework. Apart from other provisions, recently, a new provision has been passed to regulate a new economic regime based on competitive auctions under the principle ‘paid-as-bid’. Additionally, before ending 2020, a new rule on access and connection to the grid is expected to be approved and, early 2021, a law on energy transition. Continue reading “Sponsored Briefing: New Spanish remuneration framework for renewable”
In these turbulent times we are experiencing in the workplace, with a constantly changing legislative framework, the Spanish legal landscape was recently altered by the judgment handed down on 11 January 2020 by the Court of Justice of the European Union (CJEU), on collective redundancies (case C-300/19).
Whereas, just before the summer, news was appearing in the Spanish general press and specialised media of local court rulings rendering null and void terminations of employment contracts, where they were based on loss of business linked to Covid-19, now, this judgment handed down by the CJEU in Luxembourg has opened a new possibility for rendering null and void individual dismissals, linked to a tightening of the criteria used to calculate collective redundancy thresholds, under Directive 98/59/EC on the approximation of the laws of the member states relating to collective redundancies. Continue reading “Sponsored briefing: The calculation of individual dismissals under Directive 98/59/EC”
Many of us were caught in the making of transactions when the Covid-19 outbreak started or, at least, hit Europe causing a complete shutdown in many countries or started them while confined at home experiencing the sudden and unexpected demise of the economy.
While assessing the business impacts of the pandemic in ongoing transactions and those initiated while navigating new unchartered waters, lawyers, vendors and purchasers started pondering the legal impacts of this ‘new normal’ on transactions agreements and how risk-sharing provisions would operate in this context and its aftermath. Following the 2008 financial crisis, lawyers submerged on discussions on how provisions in their legal systems would operate, namely on supervening change of circumstances affecting contracts, and if the lessons then learned, carved in jurisprudence and scholars’ extensive essays, would apply to transactions generated prior or in the midst of the pandemic. The same amount of time and consideration was dedicated to the discussion on how effective (more or less) standardised risk-sharing provisions would operate in transactions preceding this Covid-19 crisis but not yet completed and how such provisions should play out in acquisitions signed and concluded while we still are besieged by the virus. Provisions on representations and warranties, interim management periods, material adverse change, force majeure, hardship and others were (are) again revisited. Continue reading “Sponsored Briefing: Keep it simple”
Insolvency and restructuring proceedings are intricate and complex. Practitioners must be able to combine legal knowledge, in particular in the areas of litigation, finance and transactions, with strategic, tactical and managerial skills to deliver positive results.
Prager Dreifuss has extensive experience and a longstanding tradition in insolvency and restructuring matters. In the wake of the financial crisis, we combined our finance and bankruptcy knowledge which enabled us to assist in complex project financing, also lately in a major multinational commodity project. Our attorneys regularly represent creditors, some of which are banks, hedge funds or other financial institutions, in large national and international insolvency and restructuring proceedings, whether in registering or purchasing claims or in enforcing disputed claims vis-à-vis bankruptcy administrators and before courts. Assisting clients in the recognition and enforcement of foreign judgments in Switzerland and abroad is a key feature of our daily practice. Frequently and increasingly, we are retained by creditors in enforcing claims (awards, bonds) against sovereigns. Continue reading “Sponsored practice area spotlight: Insolvency and restructuring: Combining unique skills to achieve a successful outcome”
